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Changing Bank Resolution Regimes – the U.S. Case
Magdalena Ignatowski
Josef Korte
Abstract
Existing resolution tools proved mostly inappropriate when governments were confronted with seriously distressed banks during the global financial crisis and the subsequent European sovereign debt crisis. Bank regulators and legislators have realized the importance of effective and appropriate bank resolution mechanisms and have brought into force significant changes to resolution regimes in an effort to prevent future crises. This article deals with the question whether resolution mechanisms can discipline banks. We revisit economic theory to determine the requirements for resolution mechanisms to induce incentives for prudent bank
behavior and apply this concept in order to examine one particular change in resolution regulation, the introduction of the Orderly Liquidation Authority. Taken together, we find that the Orderly Liquidation Authority can be interpreted as a significant improvement to the U.S. resolution regime.
Keywords:
bank resolution, Orderly Liquidation AuthorityMost read articles by the same author(s)
- Josef Korte, Why Closing Failed Banks Helps the Real Economy , Safe Bank: Vol. 55 No. 2 (2014): Bezpieczny Bank/Safe Bank
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